Question

2. Family Dentistry is a dental clinic owned and managed by a well-known doctor, Dr. Phillip

Williams, who is trained and licensed to practice general dentistry as well as dental surgery. Dr. Williams wishes to use the data on the number of patients treated at his clinic for the last

24 months to estimate demand for the dental care provided by his clinic. Demand for the clinic’s

dental care (Q_D) is specified to be a linear function of the price per visit paid by patients (PFD),

average income of households in the town and surrounding areas (M), and the price charged by

the competing dentistry, Family and Cosmetics Dentistry Center (PFCDC).              (3 pts each)

QD = a + bP_FD+ cM + dP_FCDC

Month             Q_D       P_FD       M         P_FCDC

1                      1894    316      66700 201

2                      1914    316      66700 201

3                      1489    345      66700 230

4                      1531    345      64745 230

5                      1625    345      64745 230

6                      1585    345      64745 230

7                      1577    345      66528 230

8                      1509    345      66528 230

9                      1496    374      66528 288

10                    982      403      66240 288

11                    1107    403      66240 288

12                    1424    374      66240 259

13                    1237    374      66988 259

14                    1256    374      66988 259

15                    1405    374      66988 259

16                    1504    374      67833 288

17                    1448    374      67833 288

18                    818      431      67833 288

19                    1286    403      68540 288

20                    105      546      68540 431

21                    158      546      68540 431

22                    986      431      69920 288

23                    1153    403      69920 288

24                    1527    368      69920 253

a. Using Excel and the data provided in the table, run a regression to estimate the linear demand function for the clinic’s service.                                                                                                           

(Copy and paste here your computer printout).

b. Write the equation of the sample regression line here.

c. Test the overall equation for statistical significance at the 5% significance level.

d. Evaluate the statistical significance of the estimated coefficients. Assume that the owner is comfortable using parameter estimates that are statistically significant at the 5% level or better.

e. How much in the total variation in (Q_D) is explained by the regression equation? How much of the total variation in (Q_D) is unexplained by the regression equation? What other explanatory variables might be added to this equation to increase its explanatory power.

f. If the clinic charges $450 per visit and the Family and Cosmetic Dental Center (FCDC) charges $300 per visit, and the average household income in the region is expected to be $74,000. What will be the estimated number of visitors to Family Dentistry?

Answer 1